Impact of the Homebuyer Tax Credit for Birmingham AL

The best way to evaluate the expected impact of the homebuyer tax credit for this area is to look at the past two years in terms of composition of closed business.

The past impact of the homebuyer tax credit for the Birmingham area can be seen in the sold terms categories of FHA, VA and Rural Development (RD). While the overal market decreased about 27% year over year, FHA business actually increased 23%! You also see significant increases in VA and RD. Clearly, the impact of the homebuyer tax credit for other segments of the market were zero and reflected the overall downturn in real estate generally.

The following two charts further illustrate the mix of business as detailed in the table above by year:

As shown at left, in 2007-2008, conventional business was nearly 2/3 of all closed business with FHA and VA combining for about 17%. RD was not even on the chart. As you may know, FHA, VA and RD are the categories associated with first time homebuyers although some go conventional as well.

As shown at right for 2008-2008, conventional business slipped to just under 1/2 while FHA, VA and RD all grew substantially. While there could be other factors involved, this clearly shows the impact of the homebuyer tax credit during this time frame. It is clear that the decrease in the market overall has been at the expense of conventional buyers.

With the extension and EXPANSION of the tax credit to include some buyers who were previously excluded, we as realtors expect to see a boost in the conventional category which represents homes that are priced a little higher that FHA, VA and RD despite the limitations (i.e., the 5 year rule). For a summary of the provisions of the homebuyer tax credit, go to tax credit. For buyers that have been in their homes for more than five years and within the income limits, the tax credit could offset depreciation experienced in the past 2-3 years. While it is difficult to estimate the impact of the homebuyer tax credit in the Birmingham market, suffice it to say that if we can get a boost in demand for higher priced homes approaching the market mix of 2007-2008, realtors and sellers will be much happier.